Budget snapshot: Spin war persists in fiscal impasse

This is the time of year when the legislative leaders begin to get a little sensitive about the notion that they are standing idle as the budget stalemate drags on. To that end, Senate Leader Darrell Steinberg is trying to promote the idea that progress is being made between Democrats and Republicans in the Capitol over closing the state’s spending gap.

Steinberg insists the fight between Republicans and Democrats is really over a $7 billion hole, not the entirety of the state’s $19 billion budget problem. But trying to get specifics about what is in the $12 billion of reported agreement between the two sides can be tricky. In fact, the notion itself was rejected by a Schwarzenegger spokesman this week.

“Once the Democrats produce a budget bill, there very well may be some things we agree on,” said Schwarzenegger’s press secretary, Aaron McLear. “Every day they fail to do this, the problem gets $52 million worse.”

Steinberg said Tuesday that in truth, Democratic leaders and the governor agree on how to close more than half of the state’s $19.1 billion deficit. It’s just that pesky last $7 billion or so that is still the problem.

Assembly Democratic sources also indicate there is agreement on about 60 percent of the $19 billion budget problem. Republican leaders have dismissed the notion as Democratic spin.

Even if the haggling over numbers continues, the fundamental gulf between the two parties remains the same. Democrats want tax increases. Republicans want deeper spending cuts to state programs.

Democrats have agreed to some cuts, but billions less than the $12.5 billion proposed by Schwarzenegger in May. They say they are prepared to postpone about $1 billion in payments to education – money that would normally be due to public schools in the current budget year. Of course, these cuts or delayed payments could grow depending on final revenue figures and any potential new taxes in the budget, since budget formulas dictate that schools receive about 40 percent of all new revenues.

Democrats also say they are prepared to score savings of about $700 million from state worker salaries and leaving thousands of vacant state positions unfilled. That’s about half of the $1.5 billion Schwarzenegger said he hopes to save through cutting state worker salaries and asking public employees to pay more into their own pension funds.

Schwarzenegger and Democratic leaders have also embraced about $1 billion in cuts to state prisons – cuts that may run into problems because the state’s prison healthcare system is in the hands of a federal judge.

Federal funding is used by both Democrats and Gov. Schwarzenegger to plug the state’s budget hole. Schwarzenegger’s May budget relies on about $3.4 billion in federal dollars. Democrats say that money could increase if and when Schwarzenegger’s proposal to eliminate the state’s welfare-to-work program, CalWORKS, is rejected. Budget negotiators on all sides concede a complete elimination of CalWORKS is unlikely.

Democrats are using revenue figures provided by the legislative analyst instead of those given by the governor’s Department of Finance. The LAO revenues are about $1.4 billion higher than the administration’s numbers. Again, Republicans have refused to acknowledge any piecemeal portion of the budget is settled, but Democratic proposals rely on more favorable revenue figures to help shrink the budget gap.

Budgets have become more than just spending plans. They’ve become crucibles for new phrases in the lexicon of California political insiders.  This year, the Schwarzenegger administration introduced the notion of “alternative funding,” which they say will make up $1.3 billion. Included in these proposals is moving $350 million from redevelopment agencies to pay for trial courts and a $160 million fee on hospitals.

Schwarzenegger has also called for $2.1 billion in other fund shifts from various pots of money into the state’s general fund.  Among these proposals is a $650 million loan of excise taxes on gasoline.

While Democrats may differ over the details of the borrowing proposals and other budget fund shifts, they are counting on a similar dollar figure – about $3.4 billion – in such maneuvering to free up general fund revenues.

At the end of all of this, the fundamental disagreement between Democrats and Republicans remains.

Both Steinberg and Assembly Speaker John Pérez want to see tax increases as part of the final budget deal. Steinberg and Pérez have both embraced a revenue package that includes delaying more than $2 billion in corporate tax breaks. Steinberg has also put forward a plan to delay a scheduled rollback in the state’s personal income tax rate. The income tax, which is set to go down on Jan. 1, 2011, is worth about $1.5 billion to the state over the first six months of 2011.

Pérez and Steinberg have also embraced the concept of a tax on oil production, which could be worth about $1 billion annually. Another option being discussed is a 1/4-cent hike in sales tax which Democrats think can be done without Republican votes through a mechanism being called the “single flip.”

Republicans, meanwhile, want to see deeper cuts in state spending. They are unlikely to support any plan that does not contain at least some of the $12 billion in cuts proposed by Schwarzenegger.

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